Growth Decomposition and Productivity Trends Leonardo Garrido and Elena Ianchovichina PRMED March 23, 2009.

Slides:



Advertisements
Similar presentations
CAPITAL AND ITS PRODUCTIVITY IN FINLAND, Pirkko Aulin-Ahmavaara & Jukka Jalava Statistics Finland / Helsinki School of Economics.
Advertisements

Estimates of Capital Input Index by Industries of China, Sun Linlin, Beihang University Ren Ruoen Beihang University.
Australian Industry MFP: Measurement issues and initiatives Presentation to OECD Productivity Workshop, Bern, October 2006.
Trends in Infrastructure Investment Eighth ACCC Conference Sanctuary Cove, 27 July 2007 Jeff Balchin Director.
Chapter Two 1 A PowerPoint  Tutorial to Accompany macroeconomics, 5th ed. N. Gregory Mankiw Mannig J. Simidian ® CHAPTER TWO The Data of Macroeconomics.
Capital accumulation with a fixed rate of investment. Total investment (capital) grows until new investment plus natural growth from existing investment.
Chapter 6: Economic Growth Estimate economic growth and implications of sustained growth for standard of living. Trends in economic growth in U.S. and.
Macroeconomics & Finance Introduction & Chapter 3.
Chap. 4, The Theory of Aggregate Supply
21 GDP and the Standard of Living CHAPTER. 21 GDP and the Standard of Living CHAPTER.
R&D as a Value Creating Asset Emma Edworthy Gavin Wallis.
23 ECONOMIC GROWTH. 23 ECONOMIC GROWTH Notes and teaching tips: 7, 13, 29, 40, 43, 45, 46, 48, 52, 59, and 60. To view a full-screen figure during.
Growth Decomposition and Productivity Trends
Chapter 1. Macroeconomic for the long run and the short run ECON320 Prof Mike Kennedy.
© 2011 Pearson Education GDP: A Measure of Total Production and Income 5 When you have completed your study of this chapter, you will be able to 1 Define.
Economic growth theory: How does it help us to do applied growth work? Elena Ianchovichina PRMED, World Bank Joint Vienna Institute, Austria June, 2009.
ECNE610 Managerial Economics APRIL Dr. Mazharul Islam Chapter-6.
Growth and Productivity: Long-Run Possibilities Chapter 17 Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin.
Constant Price Estimates Expert Group Meeting on National Accounts Cairo May 12-14, 2009 Presentation points.
Gross Domestic Product (GDP) What is Gross Domestic Product and how we measure it? Why is this measure important? What are the definitions of the major.
Production Functions. Students Should Be Able To Use the Cobb-Douglas production function to calculate: 1. Output as a product of inputs 2. marginal and.
Prepared by: Jamal Husein C H A P T E R 10 © 2005 Prentice Hall Business PublishingSurvey of Economics, 2/eO’Sullivan & Sheffrin Measuring a Nation’s Production.
1 20 C H A P T E R © 2001 Prentice Hall Business PublishingEconomics: Principles and Tools, 2/eO’Sullivan & Sheffrin Measuring a Nation’s Production and.
1 Defining Economic Growth Economic growth: an increase in Real GDP. Small changes in rates of growth  Big changes over many years Compound Growth Rule.
RUSSIA |ECONOMICS. Slide 2 | September 2012 | Economics: Discovering Russia FSU GDP per capita, 1991 and 2011, $ Source: IMF.
Inflation Report May Output and supply Chart 3.1 GDP at market prices (a) Sources: ONS and Bank calculations. (a) Chained-volume measures. The.
The Widening Income Dispersion in Hong Kong: 1986 – 2006 LUI Hon-Kwong Dept of Marketing & International Business Lingnan University (March 14, 2008)
Inflation Report August Output and supply Chart 3.1 GDP at market prices (a) Sources: ONS and Bank calculations. (a) Chained-volume measures. The.
© 2011 Pearson Education GDP: A Measure of Total Production and Income 5 When you have completed your study of this chapter, you will be able to 1 Define.
© 2006 Prentice Hall Business Publishing The Economic Way of Thinking, 11/e Heyne/Boettke/Prychitko “The Economic Way of Thinking” 11 th Edition Chapter.
Transformation – results © Libor Žídek. Economic growth in Czechoslovakia , and trend line.
Real Business Cycle Theory
Understanding Canada’s ICT Investment Shortfall Andrew Sharpe Executive Director, Centre for the Study of Living Standards One-Day Workshop: “Firms and.
China KLEMS Database —— The 2 nd Asia KLEMS Database Management workshop Ren Ruoen Sun Linlin Fan Maoqing Zheng Haitao Li xiaoqin.
Potential Growth in Latin America André Hofman, Claudio Aravena and Jorge Friedman World KLEMS, May, 2016.
Investment and Economic Activity Read Chapter 14 pages I The Role and Nature of Investment A) Investment adds to the nation’s capital stock and.
Copyright © 2008 Pearson Addison-Wesley. All rights reserved. Chapter 6 Economic Growth: Solow Model.
Chapter 7 Appendix: The Solow Growth Model
8. TECHONOGICAL PROGRESS
Chapter 12 The Production Function Approach to Understanding Growth
Labor Productivity: Wages, Prices, and Employment
The Theory of Economic Growth
Open-Economy Macroeconomics
CHAPTER FIFTEEN Cleary / Jones Investments: Analysis and Management
MBF 2263 Portfolio Management & Security Analysis
Economy/Market Analysis
Business Cycles and Unemployment
Business Economics (ECO 341) Fall: 2012 Semester
Chapter 7 Appendix: The Solow Growth Model
Gross Domestic Product and Economic Growth
22 ECONOMIC GROWTH.
Industry Productivity Growth in China and Prospects for Growth
Ph.D. Candidate, Economics, Tarbiat Modarres University(TMU),
MANKIW'S MACROECONOMICS MODULES The Data of Macroeconomics
Chapter 6 ECONOMIC GROWTH.
Price and Volume Measures
CF of non-traded project OUTPUTS Krishna R Khadka
Variations in Economic Structure
Structural Change: Pace, Patterns and Determinants
International Economics: Theory and Policy, Sixth Edition
“Post-crisis productivity: Lessons from the UK”
MACROECONOMICS AND THE GLOBAL BUSINESS ENVIRONMENT
A Tour of the Book Chapter 2.
Economic growth theory: How does it help us to do applied growth work?
Economic Performance Chapter 13.
Chapter 14 Investment and Economic Activity
Price and Volume Measures
Chapter 8 Economic Growth.
Economic Growth Read Chapter 8 pages 168 – 182
Chapter 6 Lecture – Economic Growth
Presentation transcript:

Growth Decomposition and Productivity Trends Leonardo Garrido and Elena Ianchovichina PRMED March 23, 2009

Possible growth decompositions  Contribution of demand components  Sectoral contribution to growth  Growth accounting 2

Contribution of Demand Components to Growth (I)  What are the proximate drivers of growth in aggregate demand? Departs from fundamental equation Y=C+I+G+X-M Aggregate supply = Y+M Aggregate Demand = C+I+G+X  Steps: 1. Calculate annual growth rate of each component of aggregate demand 2. Calculate shares of each component of aggregate demand 3. Calculate the contribution to growth of each component by multiplying growth rates of demand components times share of component in aggregate demand 3

Contribution of Demand Components to Growth (II): The Case of Egypt. 4

Sectoral Contribution to Growth  Similar approach to demand contribution to growth Uses GDP at factor costs (not at market prices) which equals the sum of GDP of economic activities Imputed financial services not excluded from each economic activity (assumption of financial services proportion to sectoral GDP)

Growth Accounting (I)  With CRS Hicks Neutral Cobb Douglas production function  Taking logs and differentiating 6

Growth Accounting (II)  GDP data in real terms. All series to be expressed in same currency unit and base year  Factor shares: Obtained from National Accounts.  is the ratio of compensation to capital (Net operating Surplus) to total GDP at factor costs. Assumption of CRS can be tested if times series of compensation to capital and labor are available for the analyzed period. The labor share  (=1-  with CRS) can be calculated from National Accounts as the ratio of remuneration to labor to GDP at factor costs  Capital services are assumed to growth at same rate as capital stock (which implicitly says that no changes in capacity utilization occur during the analyzed period) 7

Growth Accounting (III)  Capital stocks (K) estimated from perpetual inventory method, given the depreciation rate (d) and the Investment flow (I): K t = K t -1*(1-d t ) +I t Capital Stock data available from Nehru and Dhareshwar (1993)  Employment data expressed in number of workers per year If available, use number of hours worked by period  Human Capital accumulation proxy-ed by education attainment. With different categories of education (primary, secondary, tertiary) a Human Capital Index may be weighted by means of Returns to Education in each category. 8

TFP as a proxy to returns to capital accumulation  Problems with TFP (and growth accounting, in general) TFP is a “measure of our ignorance” Imperfect measures of factors of production Natural resources not included Factor shares as elasticities of output to changes in output constitutes a strong assumption Is Cobb-Douglas an adequate functional form?  Alternative measures for returns on capital accumulation Ratio of Net operating Surplus (From National Stocks) to capital stocks (estimated from perpetual inventory method) 9

Case example 10

Is the rate of return on economic activity low?  Assess TFP growth using growth decomposition at the aggregate level Look at the TFP and factor accumulation trends Look at the estimates in recent years and the final year Conduct sensitivity analysis to see whether the finding are sensitive to changes in the qualitative findings  The aggregate TFP growth estimates may be misleading: it is important to look at sources of growth 11

The case of Mongolia. Efficiency has improved… 12 Source: Ianchovichina and Gooptu (2007)

Sensitivity analysis  Productivity growth was positive in 2004 under: Different values for the parameters Different functional forms 13

Sectoral decomposition Not all sectors enjoyed high returns to capital  Returns to capital in manufacturing and transport were negative  Returns in agriculture were very volatile 14

What do these results tell us?  Growth in Mongolia has been narrowly-based  Driven by the booming mining and real estate sectors  Mongolia has remained vulnerable to terms-of-trade changes  Large part of Mongolia’s labor force employed in low-productivity activities 15

The case of Benin Efficiency has declined… 16 Source: Ianchovichina (2008) based on the following assumptions: Cobb-Douglas production function with CRTS and capital share α=0.4.

Sensitivity analysis  Result for 2006 is robust to changes in specifications  We rule out the possibility that this productivity deterioration was due to negative TOT shocks as Benin’s TOT remained unchanged in the period

Need to rule out exogenous shocks 18 Source: Ianchovichina (2008) and Benin CEM, Chapter 1

Over the years Benin grew primarily through expansion of capacity, not more efficient use of existing capacity 19 Source: Ianchovichina (2008) and Benin CEM, Chapter 1

Industry has stagnated… Key drivers of growth: agriculture and trade 20 Source: Ianchovichina (2008) and Benin CEM, Chapter 1